Preliminary Economic Insights on the Omicron COVID Variant

New COVID variants emerge frequently, but very few materialize into a significant threat. The latest variant to gain attention, Omicron, was discovered on November 11. Since then, it has quickly become the dominant COVID strain in South Africa and has been detected in over 20 countries, including the U.S. The World Health Organization (WHO) is monitoring Omicron and on November 26 designated it as a “variant of concern” based on the risks that some of its mutations may pose. In response, some countries have enacted travel bans to slow the spread, and markets have become volatile.

According to WHO, preliminary evidence suggests Omicron may be more transmissible and pose an increased risk of reinfection, but there is still too little data to draw many meaningful conclusions. Studies are underway to determine Omicron’s impact on vaccine effectiveness, disease severity, and other important data. Based on Omicron’s high number of mutations, it’s possible that previous vaccines may prove less effective, but an Omicron-specific booster could be available as soon as early 2022.

In the coming weeks, it should become more clear what risks—if any—Omicron poses. In the meantime, markets are likely to experience increased volatility. At times like this, it’s understandable that an equity investor might consider reducing their exposure to protect gains and avoid a potential market pullback. However, it’s important to remember that we’ve seen this scenario before, and from a medical perspective, experts believe we are in a much better position now with the COVID vaccines, treatments, and high levels of natural immunity—all of which should offer some protection against Omicron.

In addition, the economy is in a very healthy position. The services and manufacturing sectors are expanding, personal incomes and spending are increasing, and the job and housing markets are strong. Importantly, government leaders seem less interested in reinstating broad, strict lockdowns, which were responsible for much of the economic damage that resulted from earlier COVID waves. Even if Omicron slows growth and inflation, the Federal Reserve could adjust their policy plans to help support the economy and markets while Omicron runs its course.

Ultimately, it’s too early to know what impact Omicron will have. While it could slow parts of the economy for a time, it’s unlikely to derail the current expansion. Instead of trying to dodge a potential selloff, we recommend that people invest funds needed in the short-term conservatively. This strategy enables money invested in the stock market to compound over the long term and recover from temporary, near-term volatility.

As incremental data becomes available, we will continue to monitor Omicron and market reactions. As opportunities and risks present themselves, we will adjust portfolios accordingly.

If you need assistance and would like to talk to a Blue Trust advisor, please contact us at 800.987.2987 or email blog@bluetrust.com.

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